Archives for October 2019

Only weeks after Exxon released a set of reports intended to ease shareholders’ concerns about the way the oil giant was managing the risks posed by climate change, Exxon’s own greenhouse gas manager said those reports may have misled investors, according to the New York attorney general’s office.

The allegation was part of testimony given Friday, the fourth day of the trial to determine whether Exxon violated New York’s Martin Act by deceiving investors over climate change. Attorney General Leticia James alleges that Exxon committed fraud by disclosing that it used one set of numbers to calculate climate risk to shareholders while using a different, undisclosed calculation to privately plan how to invest the company’s own funds.

Exxon doesn’t deny it used different numbers, but contends the two are different calculations and maintains it has made accurate disclosures to investors.

James contends the disclosures were not adequate.

As evidence, the AGs office pointed the court to notes attached to an email sent in May 2014 by Guy Powell, Exxon’s then-greenhouse gas manager, to other company employees. The notes were talking points to accompany slides showing proposed revisions to Exxon’s DataGuide, an internal company planning document that is updated annually.

One proposed update was to align the greenhouse gas cost in the DataGuide with the proxy cost of carbon, which is listed in the Energy Outlook, Exxon’s annual report on global energy demand.

Investors testified earlier this week that they were misled to believe that Exxon used only one proxy cost of carbon when assessing how climate change would impact the future of its business.

Powell testified he doesn’t recall writing the notes, nor does he recall who wrote them.

Exxon has said it used the proxy cost of carbon to determine how climate-related regulations might affect the future demand for energy and a separate number—greenhouse gas (GHG) cost—to calculate the costs climate-related regulations might have on greenhouse gas emissions generated by potential projects.

Prior to 2014, Exxon’s proxy cost of carbon—as listed in the Energy Outlook—was $60 per ton in 2030 for more regulated countries and its greenhouse gas cost—as listed in the DataGuide—was valued at $40 per ton of carbon.

The suggested edits were accepted and the 2014 DataGuide was aligned with the Energy Outlook.

The AG’s office says the timing of the alignment, just months after the release of Energy and Climate and Managing the Risks, raises red flags.

“We don’t set our guidance based on a publication, we’re not trying to trick ourselves,” Bailes testified, adding that alignment of the two numbers was based on the world’s progress on climate change and the anticipation of a global agreement on the regulation of greenhouse gas emissions.

Whatever the reason for the update, it appears Exxon did not disclose the change to investors.

Exxon vice president and controller David Rosenthal testified Thursday that the company first disclosed publicly it used a separate set of greenhouse gas costs to evaluate future investments in its Managing the Risks report, which was released prior to the DateGuide’s update. Rosenthal also said he is unaware of any additional company disclosures.

Attorneys for Exxon limited their cross-examination of Powell to around 10 minutes, leaving the AG with no other witnesses to call on Friday. Many of the people on the AG’s witness list are current or former Exxon employees, many based in Dallas or elsewhere. They aren’t expected to arrive in New York until shortly prior to scheduled testimony.

The lack of witnesses exasperated Judge Barry Ostrager, who has said the trial will conclude no later than Nov. 12.

“Going forward, if you don’t have a witness, you rest,” Ostrager said.

“The entire case?” an attorney for the AG’s office asked.

“Yes,” Ostrager said, adding it is the AG’s obligation to organize witness schedules to ensure court hours are occupied with testimony.

“I am stunned because ExxonMobil can now get us to rest by telling us they’ll need an hour and a half and elect not to cross,” said Kevin Wallace, acting chief of the attorney general’s investor protection bureau, who indicated he had expected Exxon’s cross-examination of Powell to last the rest of the afternoon.

“Same with Exxon—if they don’t have a witness, they rest,” Ostrager said, adding that attorneys from both sides should be able to coordinate.

“You’ve been working with each other for years,” he said, referring to the AG’s lengthy investigation and Exxon’s exhaustive attempts to wrangle free from the lawsuit.

Both sides delved into details of a potentially deceiving map shared with investors as Exxon’s climate fraud trial continued Thursday in New York.

On the stand Thursday was Exxon vice president and controller David Rosenthal, who formerly headed investor relations for the company. He defended the map, which was titled “Greenhouse Proxy Costs Increase” and was shared with groups of shareholders. A legend indicates the map was shaded to depict “CO2 ‘Proxy’ Cost,” but Rosenthal testified it was not an accounting of greenhouse gas costs.

Confusing and seemingly contradictory communications about proxy costs and greenhouse gas costs lie at the heart of New York Attorney General Leticia James’ allegations. Her office claims that Exxon deceived investors by failing to disclose that it used one number to calculate climate risk that was shared publicly with shareholders while internally it used different numbers to privately plan how to invest the company’s own funds. After a lengthy investigation, James’ office last year charged Exxon with violating the Martin Act, New York’s powerful anti-fraud statute.

Exxon doesn’t deny it used different numbers, but says it used what it refers to as a proxy cost of carbon to determine future energy demand and a separate number it refers to as a greenhouse gas cost to evaluate investments. The oil giant says those are different calculations and maintains it has made accurate disclosures about the two numbers to investors.

Attorney Kim Berger, chief of the AG’s internet and technology bureau, pressed Rosenthal for details on climate change-related proposals filed in late 2013 and early 2014 by shareholders eager to understand how the company was managing the risks of climate change.

Exxon has said its March 2014 Managing the Risks report was released in response to those requests.

Rosenthal testified that after receiving the proposals, he met with a large group of investors in New York in December 2013. In it, Exxon officials presented the map in question, which Rosenthal said, “has nothing to do with greenhouse gas costs.”

“What we were conveying here was that as we looked out into the future, governments could take a number of actions to suppress the demand for fossil fuels,” Rosenthal said, adding that the company considered all actions that could be taken and came up with a “proxy cost of carbon” to represent actions that could decrease the demand for fossil fuels.

Natasha Lamb, director of research and shareholder engagement for Arjuna Capital, which filed one of the proposals, testified Wednesday that the map was deceptive. She said no one from Exxon explained that it reflected only costs used when the company predicted future energy demand, not potential costs posed to its investments and projects by climate change.

Rosenthal confirmed that investors were never directly told that the map reflected future demand for energy or that it had been pulled from Exxon’s annual Outlook for Energy report, which addresses energy demand.

The map is titled “CO2 ‘proxy’ cost,” and includes text explaining “assumed cost of CO2 emissions associated with public policies in 2040 in 2012 dollars.” The map shown at the Dec. 2013 investors’ meeting gives no such explanation.

The map was again reproduced in Managing the Risks, under the title “CO2 Policies,” with the label “CO2 ‘proxy cost’ and same text used in the Outlook.

Rosenthal testified that nowhere in Managing the Risks did Exxon specifically say it had a separate process for the evaluation of future investments.

He said the transition words “where appropriate,” written in a single sentence in a paragraph on the page following the map disclosed that process to investors.

“Perhaps most importantly, we require that all our business segments include, where appropriate, [greenhouse gas] costs in their economics when seeking funding for capital investments,” Exxon wrote in Managing the Risks.

Rosenthal said he was unaware that shortly after Managing the Risks was published Exxon’s greenhouse gas manager raised concerns that the report implied that the company was using the higher proxy cost of carbon in planning for future investments.

Under cross-examination, Theodore V. Wells, lead attorney for Exxon, walked Rosenthal through an overview of the Exxon’s terminology and a brief summary of its planning processes.

Rosenthal testified that the term “proxy cost of carbon” refers to Exxon’s best estimate of any action or policy that will reduce the global demand for all energy, not just energy provided by the company. Examples include rebates on electric cars, an increase of solar-powered infrastructure and subsidies to wind companies.

The purpose of Exxon’s Energy Outlook, which has been released annually for many years, is to examine the global demand for energy, Rosenthal said, For those calculations, the company uses the proxy cost of carbon, combined with other calculations, to determine energy demand: how much energy the world will need, how much of that need can be supplied and where that energy will come from. The information can then be used to project future oil and gas prices.

“That’s why we tell our investors that everything we’re doing can be tied back to the Outlook,” Rosenthal said.

Rosenthal said the proxy cost of carbon is used to create the energy demand projections, which is reflected in the Energy Outlook. That in turn helps calculate price assumptions used to plan and budget for proposed project and investment planning.

He said greenhouse gas costs, which are different values, are the estimated expenses to specific projects caused by the potential future regulation of greenhouse gases. Examples of expenses could include taxes on greenhouse gas emissions and other climate change-related costs imposed by governments.

Rosenthal said Exxon includes standard greenhouse gas cost suggestions in its DataGuide, an internal planning document, but the company’s planners aren’t required to use those numbers when budgeting for future projects. Planners are encouraged to use actual numbers specific to the project’s location, when possible, and to consult Exxon’s internal greenhouse gas experts when evaluating the impact of future greenhouse gas regulations on potential future investments.

Wells concluded by questioning the nature of requests by Lamb and other investors for the company to disclose how it was managing climate risks.

Rosenthal said it was his understanding that the shareholders weren’t looking for detailed disclosures, which might involve proprietary information, but were simply looking for “a high level, broad discussion, something that says ‘we read what you said and gives us something that demonstrates your commitment’ to addressing climate risk.”

Wells showed the court a letter in which Rosenthal told Lamb he was proposing Exxon expand its disclosure “to further explain why our proxy cost of carbon is not the only factor we consider in assessing investment opportunities.”

Shortly thereafter, Exxon released its Managing the Risks report, which Rosenthal said was the first time the company had disclosed it used a greenhouse gas cost as an expense when planning.

“Even though you didn’t tell them orally, you did communicate it, didn’t you?” Wells asked.

“Uh-huh,” Rosenthal responded.

In her redirect, Berger pointed to wording in the shareholder proposals indicating investors wanted disclosures on the specific strategies Exxon was using to address its climate risk, something that would amount to far more than a “broad discussion.”

Berger again asked Rosenthal where in Managing the Risks it was disclosed to investors that Exxon used the separate set of greenhouse gas costs to plan future investments.

“Without picking out words and specific things, in the context and flow of the document, I would assume a person who had taken part in our discussions would have no problem understanding that,” Rosenthal said, referring to the Dec. 2013 meeting, as well as subsequent conversations with certain investors.

Referring back to Managing the Risks, Berger highlighted the sentence Rosenthal said disclosed to investors that Exxon required—“where appropriate”—that its planners include greenhouse gas costs when considering capital investments.

“Investors should have understood there was a whole different set of numbers because you used the words ‘where appropriate’?” Berger asked.

Berger wrapped up by again asking Rosenthal if the first time Exxon had disclosed publicly that it used a separate set of greenhouse gas costs to evaluate future investments was in the 2014 Managing the Risks report.

Massachusetts Attorney General Maura Healey sued ExxonMobil on Thursday in the first state lawsuit alleging both consumer and investor fraud over climate risks.

Healey said that while Exxon has long known its products drive climate destabilization, the world’s largest publicly traded oil and gas company has misled consumers with deceptive advertising and failed to disclose climate-related risks to its investors. The AG said Exxon has also failed to disclose how catastrophic climate impacts from continued fossil fuel burning could be a larger risk to the global economy.

“Exxon has known for decades about the catastrophic climate impacts of burning fossil fuels—its chief product,” Healey said. “Yet, to this day, Exxon continues to deceive Massachusetts consumers and investors about the dangerous climate harms caused by its oil and gasoline products and the significant risks of climate change—and efforts to address it—to Exxon’s business. We are suing to stop this illegal deception and penalize the company for its misconduct.”

The complaint, filed in Suffolk County Superior Court, follows a three-year investigation that Exxon has vigorously fought. The suit was filed just two days after the start of the trial in New York State’s similar lawsuit against the oil giant, which is being heard in New York Supreme Court. The New York attorney general’s office filed its lawsuit, which alleges only investor fraud in violation of the state’s anti-fraud law, the Martin Act, on this same date a year ago.

The Massachusetts complaint alleges Exxon repeatedly violated state laws and regulations regarding consumer and investor protections. The suit, while similar to New York’s case, has additional claims including the broader claim that Exxon misled investors about systemic financial risks relating to climate change.

“Exxon has not been honest with investors,” Healey said after the suit was filed. “Exxon knows that continued burning of fossil fuels presents a systemic risk to the global economy.”

The Massachusetts lawsuit also alleges Exxon misled consumers and engages in extensive green-washing—claiming its products are somehow compatible with a clean environment— in advertising and the marketing of its products. For example, Exxon claims that its gasoline and diesel oil products like “Synergy” and “green” Mobil 1 oil reduce CO2 emissions and enhance environmental performance, when in fact they are fossil fuels that contribute to transportation-sector emissions—the largest source of greenhouse gas emissions in the state.

“Exxon’s products are a leading cause of climate change, not a solution,” Healey said. And while Exxon has contended her investigation and similar legal proceedings against it are “politically motivated” and part of a conspiracy, Healey told reporters that the case is simply about fraud.

“It’s about the deception and misrepresentation made to every investor and every consumer,” she said. “That deception we allege continues to this day.”

Healey said her suit seeks relief in the form of civil penalties, attorney and investigation fees and monetary damages as well as an injunctive order to force Exxon to stop its alleged deception. The lawsuit is brought under the Massachusetts Consumer Protection Act and will be prosecuted by the AG’s Energy & Environment Bureau, with assistance from the Insurance & Financial Services Division and Consumer Protection Division.

Judge Rejects Exxon’s Emergency Motion, Lawsuit Follows

Massachusetts Superior Court Judge Heidi Brieger cleared the way for the suit earlier Thursday by denying Exxon’s emergency motion for a time extension. She ruled from the bench after a hearing to consider Exxon’s motion, which it filed one week after Healey’s office notified Exxon of its intent to sue. That Oct. 10 notification opened a five-day window for Exxon to respond and for the parties to initiate a “meet and confer” to discuss allegations before a lawsuit is filed. Exxon asked to put off the meeting until mid-November because its core attorneys would not be available until after the New York trial.

Brieger denied that motion, saying, “I don’t believe the extension is necessary for the reasons offered.”

“We’re not trying to block a lawsuit, at all,” Exxon attorney Thomas Frongillo said. “But we do have a statutory right to confer in person,” referring to a section of the Massachusetts Consumer Protection Act that requires an intended defendant to have “an opportunity to confer with the attorney general in person or by counsel or other representative as to the proposed action.”

“But that’s somewhat misleading,” Brieger responded, voicing skepticism at Exxon’s excuse that it could not meet in person right away. She said that there is surely someone from Exxon who could come and confer, though it may not be the company’s preferred representation. Exxon, she reasoned, is a large multinational corporation with many lawyers, not a “mom-and-pop shop” or sole proprietor.

The legal process began when Healey served the company with a Civil Investigative Demand (CID) in April 2016. That followed a series of journalistic investigations that revealed the company’s decades-long history of sowing doubt about climate science. Exxon countered by trying to stop the investigation in both state and federal courts and Exxon has still not responded to the CID, which it is appealing in Massachusetts court.

“Exxon fights every effort to hold the company accountable,” Healey said. “We know this case isn’t going to be easy.”

Despite Exxon’s resistance, the AG’s office said it has enough evidence to file the suit without the documents demanded in the CID.

“We’re in a position having compiled sufficient information to file a complaint against Exxon,” Richard Johnston, chief legal counsel for the AG’s office, said during Thursday’s hearing. “We would like to move forward with our plan to sue Exxon as soon as we can.”